Looking back, contract vendors can succeed if agencies do plan ahead

Changes in government contracting threaten to overturn established principles and
conventional truths.


Reinventing procurement compels vendors to rethink the process of getting and
performing contracts. The evaluation of past performance, if vigorously implemented, will
revolutionize the bid or no-bid decision. In the past, the motto was: "Bid for
revenue; manage for profit."


Once an offerer won a contract, it became the program manager's de facto partner. If
the bid price was too low to permit proper performance, the contractor could count on
contract changes to help. Conversely, the program manager would know that the contractor
would be eager to improve a flawed or obsolete system design--for a price.


This relationship may be ending. Tight budgets mean no funds are available for program
bail-outs.


The contractor may have to live with an improvident bid price; the government may have
to make do with what it asked for in the solicitation, instead of what it really needs.


Without extra money to make up for mistakes, programs might fail.


The trend is likely to accelerate. Clever federal agencies will write contracts that
shift risk and responsibility to contractors. Performance-based standards, a credo of the
reinvention revolution, helps, especially if the standards are judgmental and subjective.


Success has many fathers, but failure has none. So the issue comes down: Who will take
the fall for a failed program? Even without a shrewdly crafted contract, the obvious
scapegoat is the contractor.


But with past performance an important factor in capturing future business, contractors
will not want to take the blame. Here, however, reinvention stacks the deck against the
accused contractor. Past-performance regulations let a contractor see and dispute a poor
rating, but the contracting agency's judgment is final under Federal Acquisition
Regulation Subpart 42.15.


So a new criterion may take center stage in a vendor's decision on whether to submit a
proposal for a particular government contract. If the underlying program is ill-conceived,
or the program office is misdirected, then winning the contract might prove worse than
losing it.


Even a contract for a program with minor flaws is only worth having if the price
includes a cushion sufficiently large to fix the problems. But large margins are not a
characteristic of highly competitive government contracts.


Fortunately, the reinvention revolution spurns competition as inefficient and
time-consuming. In one innovation, the General Services Administration has exploited an
apparent loophole in the Contracting in Competition Act to do away with competition
entirely. Agencies can now buy hardware, software and services, in any amount, by placing
an order through the Multiple-Award Schedule.


This means lower risk and higher profit for contractors. Vendors of off-the-shelf
hardware and software face little risk as long as they can ship on time. Those selling
high-tech services have a potentially harder time.


In the new world of contracting, the goal is to dodge the blame. Vendors that succeed
have an opportunity for higher profits.


The profits are endangered when the contractor must compensate for poor agency
planning.


Before the word was redefined--or should I say reinvented--no one would have called
this reform.


Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo &
Associates. E-mail him at jpetrillo@counsel.com.


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